The below information summarizes CARES Act relief and implications for retirement plans as result of the effects of COVID-19.
Plan Sponsor relief
- Extension to file Form 5500, Annual Return/Report of Employee Benefit Plan, due to be filed (originally or pursuant to a valid extension) on or after April 1, 2020 and before July 15, 2020.
- With the relief the due date for filing is July 15, 2020.
- The relief is automatic and taxpayers do not have to call the IRS or file extension forms or send letters or other documents to receive this relief.
- Extension of plan amendment deadline for adopting participant relief (last day of the first plan year beginning on or after January 1, 2022)
- Due date now 7/15/20 to make deductible retirement contributions for 2019 if the employer’s tax return due date was April 15, 2020.
- A new distributable event for a “Coronavirus-related distribution (CRD)”
- Distributions between 1/1/20 and 12/31/20 qualify and may be immediately available.
- Maximum is $100,000 per individual
- Not subject to 10% additional premature distribution tax
- No 20% mandatory withholding or notice required but are subject to 10% voluntary income tax withholding, which may be waived by participants
- Qualifying conditions for this relief
- Participant, participant’s spouse or dependent diagnosed with (via test approved by CDC).
- Experienced adverse financial consequences (laid off, furlough, etc.)
- Several repayment options available to participants ( to be repaid within 36 months)
- Changes to loan requirements
- Limit increased to lesser of $100,000 or 100% of vested account balance
- Delay/suspension of payment (several options available)
- Qualifying conditions same as distributions above
- Waiver of 2020 Requirement Minimum Distributions (RMD)
- Only applies to certain types of plans
- Do not need to be distributed
Potential Partial Plan Terminations
A partial plan termination would result in terminated participants becoming fully vested in the plan’s match and profit sharing contributions that would not otherwise have been vested. If your Plan Sponsor has undergone layoffs, then you should consider the impact it has on your plan as it may lead to a partial plan termination.
To make this consideration, you should determine if the plan sponsor laid off employees versus furloughed employees.
- Furloughs are not intended to be permanent.
- A reduction in workforce (layoff) would have a clear message the employees are being terminated and not coming back.
The following are guidelines that the IRS applies to determine if there is partial plan termination:
- generally, it has been found to be 20% or more;
- however, it can be as little as 10% of the number of plan participants being terminated.
The following link provides answers the IRS frequently asked questions on partial plan terminations: https://www.irs.gov/retirement-plans/retirement-plan-faqs-regarding-partial-plan-termination
For questions or more information, please contact: